How do Short Rentals Impact Condo Owners Associations?

Short-term renting is not an entirely new concept for homeowners and owners of townhomes and condominiums. In the past, owners have rented their dwellings on a short-term basis for special events in their city (such as the Super Bowl or the Final Four), or during certain times of the year (such as hunting season). Owners in heavy vacation spots such as Hawaii and numerous coastal towns in the continental U.S. have also done short-term rentals for a long time. This used to be done by placing an ad in a local newspaper or more recently, placing an ad on a website such as Craigslist.

The “sharing economy” has resulted in a vast increase in short-term rentals throughout the country and worldwide. Home-sharing websites such as Airbnb, HomeAway, and VRBO have made it easier than ever for owners to rent out their dwelling for a few days or a week or more at a time. These websites provide home and condo owners with the opportunity to earn extra money from short-term rentals, and they provide travelers with more options and often allow them to find a lower rental rate than what they would pay at a local hotel.

While short-term rentals can be lucrative for owners, they present several unique challenges and concerns for homeowner’s and condo owner’s associations. These include:

• Usage of Common Living Space: Airbnb renters and other short-term tenants have access to the common areas within a community; such as hallways, elevators, lobbies, parking lots, gymnasiums, pools, playgrounds, and picnic areas. These tenants may not be familiar with the association’s rules and regulations in common areas, and since they are only going to be there for a short time, there is great potential for misuse and resulting damage.

• Noise and Pollution: Travelers who are on vacation tend to stay up late, play the music too loud, smoke, and engage in illicit activities. While the HOA bylaws may impose fines for many of these activities, the short-term tenants may not be concerned about that since they will be gone soon.

• Liability for Injuries: Another major concern is what happens if a short-term tenant gets hurt in one of the common areas of the property. This could expose the HOA to liability if these types of injuries are not covered by their insurance.

Short-Term Rentals and FHA Certification for Condo Associations

Condominium communities are eligible for FHA (Federal Housing Administration) certification if they consist of two or more units. FHA certification allows condos within the community to qualify for FHA-backed loans. Since roughly 60% of new home buyers use FHA financing, having FHA certification can be beneficial to condo associations by vastly increasing the pool of prospective buyers, thus enhancing the value of the units. FHA rules state that if a condo association allows short-term rentals of 30 days or less, they are ineligible for FHA-certification. This is another good reason for associations to consider prohibiting this practice.

How Should Condo Owners Associations Manage their Owners’ Ability to do Short-Term Rentals?

Many homeowner and condo owner associations do not have any explicit language in their bylaws addressing short-term rentals. This is especially true if they are not located in a popular vacation spot. These days, every association needs to address this issue regardless of where they are located. The first step should be to have a board and/or community meeting to decide if the owners want to allow or prohibit Airbnb and other short-term rentals.

After weighing the pros and cons of each side, many associations will likely decide that it is best for the community to prohibit short-term rentals. Once this is decided, they should consult their attorney to have explicit language to this effect added to the association’s rules and regulations.

To ensure that they continue to qualify for FHA certification (this is an ongoing process as they need to be re-certified every two years), it is important to state that rentals of any units must be for a period of at least 30 days. The board or community may wish to go further and extend this period to 60 days or even a full year.

If the association determines through a majority opinion of the board and/or owners that it is in the best interests of the community to allow short-term rentals, associations should work closely with a qualified attorney to create bylaws that address the specific areas of concerns around having short-term guests to ensure that owners and long-term tenants who reside there are safe and protected, and that the association is shielded from liability exposure.

Enforcing a Ban on Airbnb and other Short-Term Rentals

It is one thing to prohibit short-term rentals in condo association bylaws, it is quite another to enforce this prohibition and ensure that residents comply. Some condo owners may try to get away with it thinking that the extra money they can earn is worth the risk, and that they are not likely to get caught. There are a few ways condo associations can deal with this:

Restricting the Number of Units an Individual Can Own

Since many owners who rent units on Airbnb and other sites purchase multiple units in the same community, one possible way to deter (or at least limit) this activity is to prohibit the ownership of multiple units. The association may also reserve the right to deny ownership to prospective buyers if they have used short-term rental sites in the past.

Levying Heavy Fines and Penalties for Violations

The association needs to make the penalties for violations harsh enough to deter owners from trying to get away with a short-term rental. This can be done with heavy fines. However, fines can take time to collect, and they may require the association to take the owner to court to obtain a judgment and use various means to enforce the judgment. Another penalty that might be effective in combination with a fine would be to restrict the use of common areas, such as the pool or the workout facility.

Monitoring Short-Term Rental Sites for Listings within the Community

The association can monitor sites like Airbnb for any prohibited listings from owners in the community. They can do this themselves if they have the manpower, or they can hire an outside service to do it for them. If they run across a prohibited listing, there are two actions they can take:

• Have the association’s attorney send a “cease and desist” notice to the owner who is in violation.
• Contact the website where the rental is listed to let them know that the rental listed by the owner is in violation of association rules and thus, it is in violation of the terms and conditions of the site.